It takes time to build a successful business, but after some time the owner will likely want to retire. However, many business owners don’t think about what will happen to their businesses after they retire.
There is a lot to consider to make sure the business you spent your resources building can survive with new management.
We asked members of Forbes Finance Council what business owners need to do to retire successfully. Their advice centered on having a solid plan in place to make sure that the succession runs smoothly and that the business remains in business.
1. Plan Years In Advance
One of the best things you can do is prepare years in advance. Identify the major areas that can hinder the sale. For example, if the company is built around the owner, this risk could alienate a buyer. You spent years building your company, so spend a few years getting it ready for sale too. – Justin Goodbread, Heritage Investors
2. Identify A Successor
When the time comes to pass the torch as a business owner, it is imperative to have a detailed succession plan in place. Identifying your successor, or successors, early on in the process will give you time to ease them into their newfound responsibilities and give them the benefit of your wisdom and experience. Ensure that their goals for the future of the company align closely with your own. – Ismael Wrixen, FE International
3. Make Your Business Work For You
If you own a business and it would fall apart the moment you stop working, you are working for your business instead of your business working for you. The time to think about your exit strategy is the moment you start your business, not when you are ready to exit. Your goal at the start of your business should be to be the chairman of the board, not the CEO. – Vlad Rusz, Vlad Corp. USA
4. Devise An Exit Plan
Since most business owners rely on their businesses for income, a lack of planning means that their main source of income could be in jeopardy. The most important thing that a business owner can do is to meet with their tax and financial team, which can include many members — like an investment banker, transactional attorney, CPA, estate planning attorney and financial planner — to determine the best exit strategy. Typically, the exit strategy would involve selling to an entrepreneurial buyer (smaller buyer), a private equity firm (financial buyer), or a larger firm (strategic buyer). In meeting with the team, you need to find out the multiples you can sell your firm for and who would be the best possible buyers. If you can formulate an exit plan with a higher multiple, you will also have a better chance to truly cash out for the most money (if that is the most important goal). If your goal is to sell to a smaller buyer or keep it in the family, you will at least know the costs and benefits of that plan. Bottom line: once you know your options, you can make an informed (versus emotional) decision. – Scott Bishop, STA Wealth Management
5. Stay On After The Exit
Consider staying three to five years through the exit to allow the buyer time to transition and structure better buyout terms for you as you help them grow through the buyout. Take this timed exit to allow the buyer to put their personality and processes in place. Use your relationships and reputation to help smooth any ripples it may cause. This requires you to be the chief relationship officer instead of the CEO. – Scott Karstens, NFG Brokerage
6. Build Solid Systems
To provide a smooth transition from one leader to the next, you must have solid systems. The systems include, but aren’t limited to, standard operating procedures (SOPs); key performance indicators (KPIs) for the overall company performance; decision and authority layouts detailing who can make decisions and has authority over specific tasks; responsibility layouts showing who is responsible for specific aspects of the business, such as line items on the profit and loss statement; and a clearly defined organizational chart. Providing clarity for all employees and managers is key in the transition process. – David Gass, Anderson Business Advisors, LLC
7. Delegate Responsibilities
Confirm that all logistical areas are covered and that there are backup plans to build a seamless organization. Ultimately, having an understudy can make or break the ability to pass along the business. I believe that a well-grounded mentorship program would be very helpful in keeping cultural congruency and allowing a business to be a family that focuses on the overlap. –Penn Little, Bar Nothin’ Capital Management
8. Instill Your Values During The Transfer
As is often the case, proper planning is key. Transfer responsibilities little by little while instilling your values as a best practice. Many opt to still retain a stake in the business so they can keep an eye on how their business — the product of their blood, sweat, and tears — is running. – Atish Davda, EquityZen
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